China can decarbonise the world – but even that won't fix its overcapacity problem

China can decarbonise the world – but even that won’t fix its overcapacity problem The project “Dealing with a Resurgent China” (DWARC) has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061700. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them. Alicia García-Herrero and Haoxin Mu 24-09-2025 - 2 - Abstract China is on track to meet global green-tech demand but needs to pivot from manufacturing to infrastructure. China needs to increase its investment in power infrastructure to reduce renewable curtailment and curb its reliance on carbonintensive power sources. First, China needs to ramp up investment in its national power grid to increase power transmission capacity. Second, China needs to set more ambitious targets for energy storage capacity to support the functioning of the power grid. Finally, global demand for power infrastructure is rising. Given the rising share of renewable power, global power grid systems need to be upgraded as disturbances from weather events require greater grid stability. This will continue to boost China’s exports of electrical equipment, supporting the economy. Power infrastructure may even replace renewable equipment as a new source of trade revenue, as it is less sensitive and thus less likely to be a target of sanctions. By pivoting investment from renewable energy capacity to power-grid upgrades and equipment, China can shore up an otherwise underwhelming domestic economy, keep on track for its net-zero emissions targets and relieve geopolitical pressures. - 3 - Contents Abstract ........................................................................................................................... - 2 - Contents .......................................................................................................................... - 3 - Calculating the required installed capacity ................................................................ - 5 - Removing green-tech manufacturing subsidies deals a blow to China’s economy - 7 - Silver lining: spurring growth through grid investment .................................................. - 8 - Conclusions: overcoming overcapacity and spurring the economy ...................... - 11 - References..................................................................................................................... - 12 - Appendix ....................................................................................................................... - 13 - - 4 - China is crucial role to the world’s green transition for two contrasting reasons: it is the world’s largest greenhouse gas emitter – over 30 percent of the global total – and it is the world’s largest producer of green technology. China is vital especially for renewable energy products, manufacturing 92 percent of the world’s solar modules and 82 percent of wind turbines as of 2024 (Figure 1). The fact that 90 percent of global emissions come from energy consumption underscores the importance of China’s dominant market share. China’s leadership said in 2020 that it would achieve an emissions peak by 2030 and carbon neutrality by 2060 (Figure 2) 1 . Although these goals have not been formally adopted in law, China has published a series of regulations to pave the way, including the Action Plan for Carbon Emission Peaking Before 2030 (NDRC, 2021) and the Energy Law of China 2 . As a crucial part of its decarbonisation campaign, China aims to raise the share of energy consumption generated from non-fossil fuel sources to 20 percent by 2025, 25 percent by 2030 and 80 percent by 2060. Solar and wind power will meet the bulk of this increased demand. This share stood at 19.8 percent in 2024, only a nudge away from the 2025 target. 1 Anmar Frangoul, ‘President Xi tells UN that China will be ‘carbon neutral’ within four decades’, CNBC, 23 September 2020, https://www.cnbc.com/2020/09/23/china-claims-it-will-be-carbon-neutral-by-the-year-2060.html. 2 See ‘中華人民共和國能源法’, Government of the People’s Republic of China, 11 September 2025, http://big5.www.gov.cn/gate/big5/www.gov.cn/yaowen/liebiao/202411/content_6985761.htm. 0 100 200 300 400 500 600 700 0 100 200 300 400 500 600 700 Solar panel Wind turbine Figure 1: Renewable energy equipment production, 2024 (GW) Rest of world China Source: Bruegel based on Natixis, CPIA, GWEC 0.0 0.1 0.1 0.2 0.2 0.3 0.3 0.4 0.4 0.5 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 05 09 13 17 21 25 29 33 37 41 45 49 53 57 Figure 2: China's GHG emissions Total (Million tons, lhs) Carbon intensity (ton per yuan of GDP) Source: Bruegel based on Natixis, NBS 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 60 70 80 90 00 10 20 30 40 50 60 Figure 3: China's energy consumption (%) Coal Oil Gas Non-fossil fuel - 5 - To meet its goals, China faces a steep curve for growth of non-fossil fuel energy consumption after 2030 (Figure 3). With the world’s heavy reliance on China’s green technology exports, the question arises as to whether China can produce enough renewable technology to facilitate not only its own demands, but also the rest of world’s requirements for net-zero emissions. In the following sections, we provide estimates to answer this question. Calculating the required installed capacity We calculated the amount of renewable power generation needed to meet the global renewable energy demand forecast in the International Energy Agency’s NZE 2050 scenario (IEA, 2023), which makes projections based on the premise of reaching global net-zero emissions by 2050 (Figures 4 and 5) 3 . We then estimated the installed capacity of solar and wind power that would be required by 2050, assuming the same utilisation hours per year as the average for 2020-2024 (Figure 6). See the appendix for a full explanation. Our projections show that despite being behind schedule, the stage reached in global installation of renewable power is not too far from the trajectory for achieving carbon neutrality by 2050 (Figure 7). This means the growth upside for global renewable energy demand may 3 NZE 2050 (IEA, 2023) contains only data points for 2030, 2035, 2040 and 2050. For other years, we use linear interpolation. See also Zhu et al (2025). 0 10,000 20,000 30,000 40,000 50,000 0 10,000 20,000 30,000 40,000 50,000 00 05 10 15 20 25 30 35 40 45 50 Figure 4: Global renewable energy demand (TWh, input-equivalent) Solar Wind 0 5,000 10,000 15,000 20,000 25,000 0 5,000 10,000 15,000 20,000 25,000 00 05 10 15 20 25 30 35 40 45 50 Figure 5: Global renewable power generation (TWh) Solar Wind 0 5,000 10,000 15,000 20,000 0 5,000 10,000 15,000 20,000 00 05 10 15 20 25 30 35 40 45 50 Figure 6: Global renewable installed capacity (GW) Solar Wind Source: Bruegel based on Natixis, IEA, Energy - 6 - be limited. Meanwhile, the regional breakdown shows a great imbalance: China is surpassing the required rate of installation, while the rest of world is moving too slowly (Figure 8). It thus seems straightforward for China to fulfil its own renewable energy requirements in order to achieve net-zero emissions. Even in the case of increased global demand under NZE 2050, China will still be able to supply the world’s installation needs to the same degree as it is doing now. In 2024, China supplied 91 percent of the solar modules 4 and 39 percent of wind turbines installed outside China. Assuming China maintains production at that level, and that China exports all products beyond what is needed to meet domestic demand, it will be able to provide approximately four-fifths of solar equipment and more than half of the wind turbines needed for the rest of world. For wind, there seems to be clear scope for China to contribute more than it has so far (Figure 9). For solar, it seems China’s current production is not enough to cover the world’s future demand. However, considering China’s meteoric production capacity rise, there is no doubt that China will be able to meet global demand easily, without further expansion (Figure 10). Therefore, China can already produce enough renewable products for the world’s energy transition, even in the most aggressive scenario. In fact, China faces overcapacity because global demand remains far below the NZE 2050 level. 4 This estimate omits inventory, which has been an important destination for Chinese solar exports. However, it doesn’t affect our conclusion as stockpiling means that China is supplying more than global demand. 494 122 551 150 490 99 0 100 200 300 400 500 600 0 100 200 300 400 500 600 Solar module* Wind turbine Figure 7: Renewable equipment capacity (GW) Global installation 2024 Global annual installation NZE 2050 China production 2024 Source: Bruegel based on Natixis, CPIA, GWEC. *Assuming 1.2 capacity multiplier. 277 87 217 35 165 30 386 120 0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 250 300 350 400 450 China solar China wind ROW solar ROW wind Figure 8: Annual renewable installation (GW) 2024 installation Projected by NZE 2050 Source: Bruegel based on Natixis, CPIA, GWEC. - 7 - Removing green-tech manufacturing subsidies deals a blow to China’s economy Chinese overcapacity in solar products has grown since 2023 as export prices have fallen while export volumes have continued to rise (Figure 11; García-Herrero and Xu, 2025). As external demand has subsided due to delayed installation and protectionism against Chinese green technology, Chinese manufacturers have turned to the domestic market, with irrational business practices, such as offering below-cost prices for orders. Installation has consequently surged, greatly exceeding actual energy needs (Figure 12). Consequently, the profitability of Chinese solar manufacturers has plummeted, with a 200 percent fall in their operating income from 2022 to 2024 (Figure 13). Given this, many have trimmed capital expenditure by 40 percent, on average (Figure 14). 91 39 84 57 0 20 40 60 80 100 Solar Wind Figure 9: Estimated share of China's exports in ROW installation (%) 2024 NZE 2050 Source: Bruegel based on Natixis, CPIA, GWEC 920 930 954 0 200 400 600 800 1,000 Modules Cells Wafers Figure 10: China's solar production capacity (GW) 2021 2022 2023 Source: Bruegel based on Natixis, Ember 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0 50 100 150 200 250 300 18 19 20 21 22 23 24 25 Figure 11: China's solar panel exports Volume (GW, trailing 12M) Price (USD/W, 12mma, rhs) Source: Bruegel based on Natixis, Ember 0 50 100 150 200 250 300 350 400 450 500 0 50 100 150 200 250 300 350 400 450 500 18 19 20 21 22 23 24 25 Figure 12: China's renewable installation (GW, trailing 12 months) Solar Wind Source: Bruegel based on Natixis, CEC - 8 - In addition, China in February 2025 5 repealed the fixed feed-in tariff for renewable power, meaning newly built on-grid renewable projects since 1 June 2025 have to face marketdetermined prices. This triggered massive frontloading in the first half of 2025 6 . After the cut-off date, installation declined rapidly and is expected to continue to decline. With worsening financial performance, the ending of price support and frontloaded installation, China’s enthusiasm for renewables should cool in the remainder of 2025 and beyond. Structural overcapacity will decline gradually as the market consolidates through mergers and acquisitions. Silver lining: spurring growth through grid investment Although installation of renewable energy generation capacity in China has increased, it hasn’t been utilised effectively, because of the unstable nature of renewable power and, more importantly, the lack of infrastructure for renewable projects. 5 NDRC, ‘关于深化新能源上网电价市场化改革 促进新能源高质量发展的通知’, National Development and Reform Commission, People’s Republic of China, 9 February 2025, https://www.ndrc.gov.cn/xxgk/zcfb/tz/202502/t20250209_1396066.html. 6 ‘Global solar capacity addition soars to 380 GW in H1 2025, led by China’, Economic Times, 2 September 2025, https://energy.economictimes.indiatimes.com/news/renewable/global-solar-capacity-addition-soars-to-380gw-in-h1-2025-led-by-china-report/123646398?. -50 0 50 100 150 200 250 -50 0 50 100 150 200 250 08 10 12 14 16 18 20 22 24 Figure 13: Operating income of listed Chinese renewable companies (RMB bn) Solar Wind Battery Other equipment Project contractor Others Source: Bruegel based on Natixis, Bloomberg 0 50 100 150 200 250 300 350 0 50 100 150 200 250 300 350 08 10 12 14 16 18 20 22 24 Figure 14: Capital expenditure of listed Chinese renewable companies (RMB bn) Solar Wind Battery Other equipment Project contractor Others - 9 - From 2020 to 2024, China installed an unprecedented 900 GW of renewable capacity, yet failed to reduce energy and carbon intensity by 13.5 percent and 18 percent (Figure 15), as called for in the government’s 14th Five Year Plan 7 . In addition to the structural slowdown in the Chinese economy, China’s continued reliance on electricity from fossil fuels could be a major reason. Despite the higher share of renewable power in installed capacity, the share of electricity generated from renewable energy sources remains low, leaving the bulk of the power load to fossil fuels (Figure 16). 7 NDRC, ‘十四五”规划《纲要》主要指标之15|单位GDP二氧化碳排放降低’, National Development and Reform Commission, People’s Republic of China, 25 December 2021, https://www.ndrc.gov.cn/fggz/fzzlgh/gjfzgh/202112/t20211225_1309662.html. -3.6 -5.0 -1.8 -2.0 -4.8 -5.5 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 Energy intensity Carbon intensity Figure 15: Annual reductions (%) 2015-2019 2020-2024 2025-2030* Source: Bruegel based on Natixis, NBS. *Needed for 65% reduction vs 2005 by 2030. 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 2021222324 2021222324 2021222324 Fossil fuel Wind Solar Figure 16: China's power mix (%) Capacity Generation Source: Bruegel based on Natixis, NBS, CEC